Product Ruling

PR 2002/120WA1 - Addendum to Withdrawal

Income tax: Palandri America Wine Business (Revised Arrangement)

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Addendum to Withdrawal

This Addendum amends the Notice of Withdrawal for Product Ruling PR 2002/120 which issued on 1 July 2004.

The withdrawal notice for PR 2002/120 is amended as follows:

1. Paragraph 1

Omit the paragraph, substitute:

1. Product Ruling PR 2002/120 set out the Commissioner's view on the tax consequences for entities participating in the Palandri America Wine Business (Revised Arrangement) (the Project) by entering into a Lease and Management Agreement for the purpose of carrying on a commercial viticulture and wine production business. The Ruling was withdrawn on 1 July 2004 as interests in the Project were no longer being sold.

2. Although withdrawn, the Ruling continues to apply to Members who were accepted to participate in the Project between 23 October 2002 and 1 December 2002. It may therefore be relied upon subject to there being no material difference in the arrangement, or in the Members' involvement in the arrangement.

3. PR 2002/120 ruled that Members could claim deductions for rent, management fees and interest on loans from Palandri Finance Ltd, although the deductibility of losses was subject to the non-commercial loss rules in Division 35 of the Income Tax Assessment Act 1997 (Division 35). The Commissioner exercised his discretion to allow losses to be offset against other assessable income for the 2002-03 and 2003-04 income years. Losses incurred in later years were required to be deferred unless certain conditions were met (see paragraphs 62 to 64 of PR 2002/120).

4. On 24 September 2008 the Supreme Court of Western Australia ordered that the scheme be wound up. The termination of the Project's Agreements on 19 March 2009 meant that Growers were no longer carrying on their own business and, although no further Project fees were incurred, losses after that date are not subject to Division 35.

5. Whilst Members will not be carrying on business after the termination of their agreements, those taking the 10 year loan option to fund their participation in the Project may have incurred interest expenses after 19 March 2009. Where a business activity has ceased, ongoing interest will continue to be deductible unless an event or circumstance occurs to break the connection between the loan and the business activity. Where a loan is refinanced, renegotiated or the purpose of the loan is otherwise altered, the connection to the income earning activity may be broken and the interest may no longer be deductible. For more information refer to paragraph 50 of Taxation Ruling TR 2004/4 which provides guidance on what needs to be considered to determine if the necessary connection still exists following the cessation of relevant income earning activities.

This Addendum applies on and from 19 March 2009.

Commissioner of Taxation
12 January 2011

Not previously issued as a draft

References

ATO references:
NO 1-2FUE8SG